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Friday, October 31, 2008

The Coming Crash Of The Euro

There isn't a soul in the connected world who isn't watching and awaiting the inevitable next episodes in the unfolding financial drama. First came subprime, then came the banking crisis. Now it's the 'country' crisis with Korea, Iceland, Ukraine, Hungary and maybe even Britain likely to play a part. But that's all as nothing. The collapse of the Euro will throw all the current crises to date into the shade. Read on..

Monetary opinion published 27th October 2008.

How About the Euro?

Then there is the problem with the euro. The US housing crash has set off a chain reaction in Europe, whose major banks are having a similar problem with Eastern European countries as the British (and European) banks have with theBRIC and Asian rim countries. Untold billions of euros were pumped into the economies of the former USSR satellites – and those are now crashing, a la Reykjavik. They can’t pay the money back, so it simply disappears from the balance sheets of the European lenders, and therefore from the EU economy.

Because of the structure of the euro-zone EMU arrangement, the ECB doesn’t have the money-printing and policy-setting monopoly of a US Federal Reserve. Member countries, on the other hand, no longer have sufficient tools available to deal with their own monetary problems, having abdicated much of their power to the ECB. As a result, both institutions (ECB as well as member-country central banks) are stuck in the mud of the US-originated credit crisis.

This causes stresses that can easily tear the EU’s monetary union apart. As it falls apart, member countries will have to revive their legacy currencies and will probably be forced to honor obligations they incurred in euros in the form of their revived national currencies. Likewise, ‘euroeuros’ (euro-denominated deposits circulating outside the euro zone) will have to be converted to legacy currencies – but of which country? There is no way of tracking which part of what deposit originated where.

That’s the big question – and the big challenge. The only way to effectively deal with this is to create a European version of the US Fed with similarly monopolistic banking regulatory and money-issuing powers. But then what? Will it really help, or will it be too late?

If it helps, the euro has a chance to rebound. If it doesn’t, the euro will simply disappear from the world scene, leaving a wake of financial destruction wherever non-EU euro-deposits cannot be converted into resurrected legacy currencies.

What a mess!


See full article HERE, by Wallenwein.

It seems like holders of Euros should dump them as fast as they can.

2 comments:

Anonymous said...

Well, where is this crash of the Euro?? Good thing real investors don't listen to this nonsense...

LOL

Tapestry said...

No date was given, but I would have thought the collapse of the currency area is proceeding roughly as predicted, anonymous. The Euro is weakening, and looking to go into another low. The points made are valid.